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Smaller cities hit hardest by airline mergers

Airline mergers over the last few years have resulted in fewer flights in the U.S., as well as a disparity in service and ticket prices between large and small cities. Jack Nicas of the Wall Street Journal joins Hari Sreenivasan to discuss.

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  • HARI SREENIVASAN, PBS ANCHOR:

    A new Wall Street Journal analysis finds ticket prices at the nation's ten busiest airports– including Atlanta, Dallas, and Denver– have been stable, increasing around 1 percent on average from 2007 to 2014 — while airlines reduced the number of passenger seats available by 1.6 percent.

    But at the 90 next biggest airports, including Detroit, Honolulu and Birmingham, airlines have raised fares more than 6 percent on average and cut available seating by more than 14 percent. Yesterday, I spoke about this with Jack Nicas of the Wall Street Journal.

  • HARI SREENIVASAN:

    What caused this? Why is this disparity happening?

  • JACK NICAS, WALL STREET JOURNAL:

    What we've seen over the past seven years or so there's been dramatic transformation in the U.S. airline industry.

    There was a bankruptcy with American Airlines, four big mergers that combined eight airlines into four, and also volatile fuel prices have caused a shift in strategy that really have caused airlines to look more at profits rather than chasing market share.

    As a result, what we've seen is they are pruning service at some of these smaller to midsize cities and really consolidating their resources at these megahubs where they can make the most money.

  • HARI SREENIVASAN:

    So these airlines are going to say listen, I have added flights to places where the economy is doing better, where people can afford to fly.

    And Lacrosse, Wisconsin probably doesn't need as many new planes or new aircraft as Seattle, Washington does.

  • JACK NICAS:

    Right, exactly. It's a matter of economics here. Flyers aren't so used to this because the airline industry for many years was focused on chasing market share. And that was good for flyers.

    It meant a lot of competition and a lot of flights in some of these smaller to midsized cities.

    But the new reality is airlines are really cutting back some of these smaller planes and smaller routes. And as a result, fliers are having to oftentimes connect at some of these megahubs if they are living in one of the midsize cities or driver an hour to one of these bigger airports.

  • HARI SREENIVASAN:

    Does this mean that the prices are getting lower or higher?

  • JACK NICAS:

    Prices are largely stable at some of the megahubs. So if you are living in one of these cities, it's good news because you've got a lot of options and prices are mainly stable.

    But airlines are cutting back at some of the smaller to midsized cities, and as a result, naturally prices are going up.

    But what we have to say as well is airfares don't tell the whole story. Over this period of time from 2007 to 2014, this great transformation in the U.S. airline industry, there has also been a big move to increase the number of fees on passengers for things like checked baggage and change fees. And as a result, the average roundtrip domestic prices have soared, not just from the base fare perspective.

  • HARI SREENIVASAN:

    I got stuck on a plane recently where they had a fee for the overhead bag, a fee to pick your seat, a fee to check a bag in. What about the low-cost airlines? Are they also moving their prices up?

  • JACK NICAS:

    There's an interesting new niche in the U.S. airline industry called an ultra low-cost carrier that the base fair includes basically just a seat on the plane.

    To do anything else, including to get your boarding pass from a human, to get a cup of water on the plane, to choose your seat, to bring a carry-on bag in the overhead bin, all of that costs extra.

    And then the more traditional discount carriers like the Southwests and Jet blues are becoming – what they're called, more hybrid carriers that are less of discounters anymore and more of like these major network carriers. And fares, as they mature, are going up with these carriers as well.

  • HARI SREENIVASAN:

    All right. Jack Nicas of the Wall Street Journal, joining us from San Francisco. Thanks so much.

  • JACK NICAS:

    Thanks for having me.

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